This article explains what a Smart Contract is and how it functions.
This article assumes the reader understands the information in the following articles:
Smart Contracts are fixed programs stored on a blockchain that can execute actions when certain predetermined conditions are met. These contracts operate on simple [if/when > then] statements written into code on a blockchain. Once these conditions are met and verified, a blockchain's network will execute the code and update the Blockchain's ledger when the program is finished.
Benefits of Smart Contracts
Speed, Efficiency, and Accuracy
Once the conditions are met, the Smart Contracts are executed immediately. Saving time and bypassing human error.
Trust and Transparency
Encrypted data is shared with every participant. Allowing for public audits, thus mitigating the possibility of fraud.
With the use of Blockchain, executions of the Smart Contract's transaction records are documented on the Blockchain. This helps prevent malicious actions from being run in a person's code since the public can audit the code's activities.
Smart Contracts eliminate the need for a 3rd party to handle transactions. This allows the code to be executed 24/7, with only a blockchain network being the bottleneck for its execution.
Blockchain and Smart Contracts work similarly to a post office and the systems engaged in package sorting. Both a blockchain and a post office process incoming and outgoing transactions between two parties in the form of packages.
The "Smart Contracts" of a Post Office are represented by the automated sorting system triggered by specific stipulations. Once a package arrives at the post office, it is scanned by the automated system to direct it to the right place:
"If the package is marked [Tampa Bay, Florida], then send it to the [Florida Bin]."
"When the [Florida Bin] is full, then send it to [Florida State]."
Since the system is automated and does not require an intermediary, there is no human error involved, and each action is immediate.